Weak Earnings in Germany Raise Concerns of Slowing Growth

Siemens, the electronics and industrial conglomerate that is a bellwether for German industry, reported that net profit in the three months ending June 30 fell 65 percent to 501 million euros ($716 million), worse than expected.

The decline was caused partly by charges related to Siemens’s exit from a joint venture with the French nuclear technology company Areva, but also by lower demand for health care equipment and by the effects of a strong euro.

Volkswagen, Europe’s largest carmaker, said profit in the quarter more than tripled to 4.8 billion euros ($6.9 billion), in line with expectations, as it sold more cars both in Germany and abroad. But the company’s preferred shares fell 5 percent after Martin Winterkorn, the chief executive, warned that Europe’s sovereign debt crisis could hurt sales.

“The coming months will be challenging for us,” Mr. Winterkorn said.

Meanwhile, the European Union’s economic sentiment indicator fell by 2.2 points to 103.2 in the euro area, as both business people and consumers became less optimistic about their prospects. The reading, the lowest in almost a year, indicates that growth is likely to continue, but at a slower pace.

“The slowdown should be temporary,” Lavinia Santovetti, an analyst at Nomura, said in a note, but she added, “Uncertainty remains on the spillover effects from the ongoing sovereign debt crisis onto the economy directly and through confidence indirectly.”

Italy and Spain showed the biggest declines in overall confidence, but a sharp fall in optimism among German exporters could be a bad omen.

A deceleration of German growth would add to the challenges Europe faces in getting the sovereign debt crisis under control. Germany’s success in exporting cars and machinery to China and other foreign markets has helped drive growth for the Continent and compensate for economic weakness elsewhere, especially in countries like Greece, Spain and Italy that are trying to cope with large debt.

“All in all, this survey provides more evidence of the loss of momentum in the euro area economy in the beginning of the third quarter,” analysts at Barclays said in a note.

In another sign that the economic outlook remained tentative, the European Central Bank reported that the increase in demand for business loans slowed, while demand for consumer credit declined. “Prospects for loan demand remain generally subdued,” the bank said in a statement Thursday.

Banks are hoarding cash while there is little activity on debt markets, said Dougald Middleton, head of capital and debt advisory at the consulting firm Ernst Young. “What this means for corporate borrowers is that funding will be more difficult to come by and is increasingly expensive,” he said in a statement. “This will be most acute for smaller borrowers and the peripheral economies inside or outside the euro zone.”

Credit Suisse, the second-largest bank in Switzerland, continued a pattern of weak earnings from big banks this week. Credit Suisse said Thursday it planned to cut about 2,000 jobs after a “disappointing” second quarter that included a big drop in earnings in investment banking.

On Tuesday UBS, Switzerland’s largest bank, said it would also have to cut jobs after profit fell by half, also largely because of poor results in investment banking.

Deutsche Bank, Germany’s largest bank, said Tuesday that net profit rose 6 percent, but that was below analysts’ forecasts.

There was some good news, as German unemployment continued to decline on a seasonally adjusted basis. The jobless rate remained at 7 percent, according to official data.

But hiring could slow if demand for German autos and industrial technology, the two pillars of Europe’s largest economy, begins to slow.

Siemens reported that profit improved in the division that supplies products and services for industry, like factory automation equipment. But earnings declined sharply in the division that supplies health care equipment like X-ray scanners, and declined in the energy division as well. Siemens said its renewable energy unit, which had been growing fast, was suffering from increased price pressure in the market for wind turbines.

Though Volkswagen’s profit met expectations, some analysts expressed concern about a dip in the profit margin on cars carrying the company’s core Volkswagen badge. The company makes many other brands including Audi and Skoda.

Growth in China, Volkswagen’s largest market, also slowed.

“Although Audi and Skoda still shine,” Christian Aust, an analyst at UniCredit in Munich, said in a note, “the lower gross margin and margin decline at the VW brand raise some questions.”

Julia Werdigier contributed reporting from London.

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